The price of cement

There is something counterintuitive about cement companies warning of insolvency amid one of the biggest building booms on the planet. Theirs is not a complex business.

The instructions on the bag say ‘add sand and water and mix thoroughly'. Or at least that's what they would say if you could find a bag of cement in the UAE these days.

With the highest per capita expenditure on construction in the world, many building sites in and around Dubai have stopped work while contractors desperately try to source the grey stuff from the black market.

They are being forced to go through intermediaries to buy the material - paying a healthy premium over an official price cap of about US$80 per tonne.

As the saying goes, ‘the art of business is being a good middleman' - and it is the cement middlemen that seem to be making the money today.

The situation has arisen because the price of cement was capped last year along with other, mainly food items, to protect against inflationary pressure. Unfortunately for the cement companies, the price of the raw materials they use to manufacture their product, was not capped in a similar way.

The upshot is that while their input costs have continued to rise, their selling costs have remained static - making it difficult for some of them to shift their cement at profit.

Contractors are either importing the material or buying it from the middlemen at vastly inflated prices, adding to construction costs and in turn fuelling inflation. You can see where we're going with this.

So it's perhaps not so strange that four cement factories in Ras Al Khaimah and Fujairah have simultaneously stopped operations citing "a breakdown of machinery and equipment." You just can't get the good machinery and equipment these days.

While the cement companies are complaining, the impact of the supply crisis is spreading and being felt all the way up the supply chain.

The cement shortage and associated price increases is now becoming a big worry for real estate developers as they are also forced to deal with the soaring cost of steel, not to mention other steadily rising costs such as labour, diesel fuel and power.

Construction cost inflation is not a new story in the Gulf, but at this point in the development cycle it is of increasing significance.

Up until now, soaring property prices have meant that the industry has been able to absorb the rising costs as developers upped their selling prices or settled for thinner margins. If material prices continue to advance at their current rate, those options may no longer exist.

Sean Cronin is the editor for Arabian Business English.

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READERS' COMMENTS

Greed has no friends or enemies...
Posted by Gill Hitrik, UK on Monday 14 April 2008 at 17:25 UAE time


It goes to show that greed has no friends or enemies just consequences. The downside is that it's the people more susceptible to this mass manipulation by the money-making mafia that end up picking up the tab. These are people who can least afford to part with their hard earned cash.

The UAE governments and legislative systems need to learn and react quickly to avoid financial peril. But why should they care about a predominantly foreign population, so long as they pay their taxes!

Think of the root Cause
Posted by Bhagat, DUBAI, UAE on Friday 11 April 2008 at 10:04 UAE time


I think it is time to think of the root cause. Soaring oil prices, leading to the amassing of wealth by a segment of population on earth, has given rise to the run for all commodities, including cement. Bring down the oil prices and watch the world getting set in to its normal pace! It is duty of every human being to reduce the dependency on oil, and it's effects in one's immediate surroundings.

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